TMI Blog2020 (10) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... m fixed deposit and/or auto renewal system in the bank and after maturity the utilization of the interest? As assessee could reply only the date of allotment of shares as per balance sheet note No.4.2, which is 29.05.2014 and the rest were remained unanswered. Therefore, the ld. AR submitted that let the AO may examine the above questions which are unanswered. Thus with the consent of both the parties for sending back to the file of AO for the examination of above questions for deciding the issue raised as aboveafresh, we remit the matter back to the file of AO for fresh adjudication in the light of the above questions and taxability of interest income as per Income Tax Act, 1961. - Appeal of the assessee is allowed for statistical purposes - ITA No.383/CTK/2019 - - - Dated:- 12-10-2020 - Shri C.M. Garg, JM And Shri L.P. Sahu, AM For the Assessee : Shri Ved Jain, AR For the Revenue : Shri M.K.Gautam, CIT DR ORDER PER L.P.SAHU, AM: This is an appeal filed by the assessee against the order dated 24.09.2019, passed by the CIT(A)-1, Bhubaneswar for the assessment year 2014-2015, on the following grounds of appeal :- 1. That the order of the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.10.2019. Wherein the Hon'ble Tribunal, after relying on the order of Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. 315 ITR 255, held that interest earned on funds primarily brought for infusion in the business activity could not be termed as income from other sources. Further, the Hon'ble Karnataka High Court on a similar issue in the case of PCIT v. M/s Banknote Paper Mill India Pvt. Ltd. in ITA 690/2017 held that this issue is ex facie covered by the decision of the jurisdictional High Courts or even the Hon'ble Supreme Court of India. Thus, no substantial question of law arises in the present case and the Appeal filed by the Revenue is without merit and liable to be dismissed. The Hon'ble Karnataka HC in the above case has relied on the order of the Tribunal. Wherein, the Tribunal held that the interest income earned by the Assessee Company on bank deposits made out of share capital received by it from the Reserve Bank of India could not be taxed as Income from Other Sources as the said interest income was earned prior to commencement of operations of the company during the construction period. Brief facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for scrutiny assessment and notice u/s 143(2) 142(1) of the Act, were issued to the assessee. The Ld. AO asked the assessee to explain why the interest on mobilization advances and Fixed Deposit should not be treated as income from other sources instead of a capital receipt. That, in compliance with the same, the assessee produced the books of accounts and other relevant documents. Moreover, assessee explained that Mobilization advance and Interest of FD are inextricably linked with the setting up of the Railway Line. Therefore, the same should not be treated as Income from Other Sources, and accordingly, it must be viewed as capital receipt going to reduce the cost of construction. Copy of reply submitted by the assessee is at PB Pg. 41-44 Subsequently, AO completed the assessment assessing the total income at ₹ 3,89,83,258/- and its passed order u/s 143(3) of the Act, dated 28.12.2016 making the following addition- Sr. No. Particulars Amount (Rs.) 1. Interest on FDR and Flexi Deposit 3,27,79,005 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estionably utilized for construction of Railway Line. Further, small amount of funds are also parked in various banks in the form of term deposit on which assessee received interest which is also expended to meet day to day cost of the project. It is pertinent to note that there is no allegation of AO or CIT (A) that the share capital of the assessee company was being used for any other purpose other than the construction of Railway Line. It is submitted that since the assessee company is incorporated only for construction of Railway Line, therefore it is not free to utilize the funds for any purpose except for Railway Project. Moreover, there is no allegation of AO regarding the utilization of funds for any other purpose, and lastly, the interest income from FD was earned in a period before the commencement of business; therefore, the said receipt is a capital receipt. The Id. CIT (A) has misconstrued the ratio of the Judgment of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and held that the income earned by the assessee is not a capital receipt. It may kindly be noted that the Hon'ble Delhi HC has interpreted the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the above Judgement of Delhi High Court has been followed by the Coordinate Bench of ITAT Cuttack in the following cases. The Hon'ble ITAT Cuttack, on similar facts after considering the decision of Apex Court in the case of Tuticorin Alkali Chemical and Fertilizers Ltd. v. CIT, a) DCIT v. M/s Radhikapur (West) Coal and Mining Pvt. Ltd., I.T.A. Nos.396/397CTK/2018, dated 21.10.2019 From the above observations of the CIT(A), we find that CIT(A) while dealing with the issue has observed that in the case of Indian Oil Panipat Power Consortium Ltd. v. ITO 315 ITR 255, the Hon'ble High Court held that the interest earned on FDs was capital receipt liable to be set off against pre-operative expenses, and could not be taxed as income from other sources. In their Judgment, the Hon'ble Delhi High Court has considered a host of decisions of various courts on the issue including the decisions of the Hon'ble Supreme Court in the cases of Tuticorin Alkali Chemicals Fertilizers Ltd. and Bokaro Steel Ltd. The case of the assessee appears to be squarely covered by the decision of the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortiu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) and dismiss the ground of appeal taken by the revenue for both the assessment years. e) M/S. KALINGA COAL MINING PVT. LTD., VERSUS ACIT ITA No. 123 and 279/CTK/2010 The learned Counsel has been able to establish that there was no surplus insofar as it was the share capital received as application money pending allotment which was poured in for the purchase/acguisition of land which would entitle the assessee to commence business of excavating coal in accordance with the Rules and Regulations governed by the State undertakings namely, IDCO and OMC. We have perused the correspondences lying with the assessee to clarify the stand taken for the purpose of starting business which reguired the assessee to park funds in the bank simultaneously incurring pre-operative expenses to the magnitude of ₹ 51 Crores and ?66 Crores. This clearly indicates that there was no surplus available with the assessee for earning interest as income from other sources. Further reliance has been placed on the following decisions wherein the decision of Indian Oil Panipat Power Consortium Ltd v. ITO has been followed : Bongaigaon Refinery and Petrochemicals ltd. v. CIT 251ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultimately be taxable as business income. Thus, in the view of above submission and judicial pronouncements, it is submitted that the interest earned on FDR Flexi deposits should reduce the cost of its assets since these are the receipts of capital nature and could not be taxed as income from other sources^ Thus, in the light of the above, it is submitted that the addition made by the Ld. AO and sustained by the CIT (A) holding that interest earned on FDR Flexi deposits is of revenue nature, is bad in law and therefore may kindly be deleted. Apart from the above, he has also filed copy of fixed deposit receipts containing pages No.1 to 8 and copy of balance sheet containing page No.9 to 11, which all are placed on record. He has also filed paper book containing pages 54 and submitted that the case is covered in assessee s own case for the assessment year 2010-2011, order dated 2009-2010, therefore, the assessee has rightly claimed it as a capital receipt. 5. On the other hand, ld. DR submitted that the authorities below are justified to hold that interest on fixed deposit is an income from other sources and case laws relied on by the authorities below are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mining and Industries Ltd. . 299,750,000 299,750,000 (c) Paradip Port Trust 510,000,000 275,000,000 (d) MSPL Ltd.. 150,000,000 150,000,000 (e) Jlndal Steels Power Ltd. 50,000,000 50,000,000 (f) steel Authority of India Ltd. 50,000,000 50,000,000 (g) POSCO Ltd, 275,000,000 275,000,000 (h) IDCO 18,000,000 18,000,000 (i) Rail Vikas Nlgam Ltd, 1,639,750,000 1,331,750,000 (j) Govt Or Odlsha 450,000,000 (k) Orissa Mining Corporation 747,000,000 4.549,500,000 2,749,500,000 Number of Share proposed to be issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the Income Tax Act, 1961. vi) the fixed deposit is a short term fixed deposit or long term fixed deposit and/or auto renewal system in the bank and after maturity the utilization of the interest. Ld. AR of the assessee could reply only the date of allotment of shares as per balance sheet note No.4.2, which is 29.05.2014 and the rest were remained unanswered. Therefore, the ld. AR submitted that let the AO may examine the above questions which are unanswered. 8. Considering the submissions of both the sides and with the consent of both the parties for sending back to the file of AO for the examination of above questions for deciding the issue raised as aboveafresh, we remit the matter back to the file of AO for fresh adjudication in the light of the above questions and taxability of interest income as per Income Tax Act, 1961. The AO is directed to decide the case after detail examinations and documents produced by the assessee after considering the relevant rules and regulations as per the law. The assessee is also directed to avoid any unnecessary adjournment and cooperate with the AO for early disposal of the case. 9. In the result, the appeal of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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